US debt talks expected to go down to the wire as Tuesday’s deadline looms

Talks on how to tackle the huge US budget deficit are continuing after the Senate blocked plans to raise the debt limit.

US president Barack Obama is hoping an agreement can be reached by Tuesday (Pic: AP)

Both sides claim a deal to avert the countryâs first default is close. However, talks will go down to the wire after Democratic proposals to clear the deficit fell ten votes short of the 60 needed.

Despite optimism that a deal can be reached before tomorrowâs deadline, the speaker of the House of Representatives, John Boehner, told his fellow Republicans that while âtalks are moving in the right direction, serious issues remainâ.

America has about one weekâs money left before it can no longer pay its bills with tax receipts alone. The White House confirmed it would consider raising the debt ceiling for an extra âfew daysâ if a plan cannot be thrashed out today.

A tentative deal has reportedly been reached, including a two-step £1.5trillion increase on the debt limit and a guarantee on spending cuts of about £730billion over the next ten years.

The first rise â of about Â£600billion â would take place immediately and the second later in the year.

Congressional leaders will brief their members on the framework of the plan today.

British treasury secretary Danny Alexander warned of âconsequences for every family and business across the worldâ if the US fails to come to an agreement.

On Saturday, Barack Obama said: âThe time for compromise on behalf of the American people is now.â

The president is seeking to raise the $14.2trillion (£8.8trillion) debt limit to tie it over until after the 2012 election.

Democrats wanted to borrow an extra £1.7trillion and make equivalent cuts to defence. Republicans sought a £600billion increase with an equal amount of spending cuts to free health and care services.